I am an employed individual living in a rented accommodation. I do not get any HRA benefits from my organization. I have heard there is a provision under the IT act in such a case. Can I save some tax on account of my paying a monthly rent?
Yes you heard it right; you can save tax even if your company does not pay your any House Rent Allowance although not many tax payers are aware of such a provision. Any self employed or salaried individual tax payer who does not receive any HRA can claim deduction under section 80GG of the income tax act. The amount stipulated under section 80CG is either 25% of the total income or Rs 2000 per month or excess of rent paid over 10% of total income whichever is lower. The deduction however will not be available in case your spouse or children own any residential accommodation in India or overseas. To avail such a deduction, you will have to file the declaration in Form No. 10BA. You can get in touch with a chartered account in case you are unable to file it yourself.
Even though HRA may not be part of the salary, you can claim the deduction under Section 80 (GG) of the Income Tax Act. Under Section 80 GG, the least of the following are considered as the HRA benefit:
- Rent paid over and above 10% of the annual salary
- 25% if the adjusted total annual income (Income as per rules prescribed by I-T Department for this purpose)
- Rs. 5,000 per month
If you live with your parents and you pay them rent, you are still eligible to claim HRA. But your parents must furnish details of rent received at the time of filing your ITR.
However, there are certain things you must keep in mind.
It is a pre-condition to claim HRA that you should not live in your own property. But, remember that your family members such as spouse or children should also not own the home or property you live in. Also, the person claiming the HRA must not earn rental income from an owned property anywhere.
Sometimes, you may forget to furnish rent receipts or relevant documents to your employer, you don’t have to panic. You can claim the HRA deduction at the time of filing the final Income Tax Return (ITR).
If you are living in a shared apartment, the share of rent payable by each individual should be clearly mentioned in the rental agreement. Based on that rental agreement, the HRA amount can be calculated.
Always try to keep the rental documents as a proof if you ever come under the scrutiny of the Income Tax Department. HRA deduction can reduce your tax liability significantly, provided you claim it the proper way.
Looking for a Home Loan? Click here.